Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg Daybreak Weekend, our global look at the
Speaker 2: top stories in the coming week from our Daybreak anchors
Speaker 2: all around the world. Straight Ahead on the program, we
Speaker 2: look ahead to some key inflation data in the US
Speaker 2: and how they may affect FED policy moving forward. I'm
Speaker 2: Nathan Hager in Washington.
Speaker 3: I'm Caroline Hepke in London, where we're examining the extent
Speaker 3: of Europe's energy crisis with earnings in focus.
Speaker 4: I'm Doug Krisner, looking ahead to next week's rate decision
Speaker 4: from the Reserve Bank of Australia.
Speaker 1: That's all straight ahead on Bloomberg Daybreak Weekend on Bloomberg
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Speaker 2: Good day to you. I'm Nathan Hager. We begin today's
Speaker 2: program with some key inflation data in the US. The
Speaker 2: Consumer Price Index for July comes out Wednesday, followed by
Speaker 2: producer Prices on Thursday, plus a read on how consumers
Speaker 2: may be dealing with higher prices when we get retail
Speaker 2: sales for the month of July. On Friday, for more
Speaker 2: on what we can expect from all this data, we
Speaker 2: were joined by Bloomberg new senior strategist Edward Harrison, of course,
Speaker 2: the author of the Everything Risk newsletter. Great to see
Speaker 2: on the weekend, ed thanks for coming in. So what's
Speaker 2: the risk that price pressures pick up in July?
Speaker 5: That is a good question. I think the risk that
Speaker 5: they pick up is not what's currently discounted by the market.
Speaker 5: The market is thinking that we had inflation of two
Speaker 5: point six percent and that inflation will fall to two
Speaker 5: point five percent going forward. This is the core number
Speaker 5: that I'm talking about now. The broader number is going
Speaker 5: to be above three percent, but the Federal Reserve generally
Speaker 5: looks at the core number because that gives them a
Speaker 5: sense of where the overall trend is going.
Speaker 2: So, where do we see price pressures continuing right now?
Speaker 2: And are we still on the disinflationary track even if
Speaker 2: we don't see changes to Fed policy.
Speaker 5: I would say that we're not on the disinflationary track,
Speaker 5: and that is the problem for the Federal Reserve that
Speaker 5: we've stopped disinflating. That is, inflation is not going down further,
Speaker 5: it's and and potentially it's rising more. And part of
Speaker 5: the reason is is because when you look at numbers
Speaker 5: like services, I think a lot of people look at
Speaker 5: something called super core services. Both for the number that's
Speaker 5: used for personal income and expenditures that's the PCE number,
Speaker 5: and then this number that we're going to see this
Speaker 5: week later on, both of those numbers, those super core
Speaker 5: numbers are higher than the baseline number. And what it
Speaker 5: says is that even if you look at core, you're
Speaker 5: not looking at a number that is reflective of some
Speaker 5: of the percolating inflationary symptoms that are in the economy.
Speaker 2: So what's keeping those services numbers higher? And is there
Speaker 2: anything that Fed policy can do to bring them back down?
Speaker 2: Are you saying that there is a risk that we
Speaker 2: could start to see the FED think about invoking policy
Speaker 2: to get some of those prices back to where they
Speaker 2: want them.
Speaker 5: Yeah, we definitely could. I think we're seeing definitely financial
Speaker 5: services as part of that. Healthcare is another part of that.
Speaker 5: Generally speaking, what we're seeing is if supercore services is
Speaker 5: well above three percent three point eight percent, actually using
Speaker 5: the PCE version that says that at its core numbers
Speaker 5: that geopolitical risk has nothing to do with are high,
Speaker 5: and therefore the Fed might have to go against that.
Speaker 5: We saw last week, however, on Friday, that when the
Speaker 5: jobs numbers came out, they were relatively poor. That is,
Speaker 5: the non farm payroll number was down, the unemployment number
Speaker 5: was lower, which is good, but it was just enough
Speaker 5: to make people think that the Fed will not raise
Speaker 5: interest rates at its next meeting, nor is it completely
Speaker 5: priced in for the meeting after that either.
Speaker 2: As you mentioned, with those jobs numbers, it does seem
Speaker 2: as though the market is giving the Fed a little
Speaker 2: bit of a breathing room when it comes to policy.
Speaker 2: But if we see a pretty elevated inflation number, does
Speaker 2: that change the forecast? I mean, is there a possibility
Speaker 2: that we could see those numbers come in a little
Speaker 2: bit hotter. Definitely, we could see that.
Speaker 5: And one of the things that's behind that is Kevin
Speaker 5: Wortsz is the new Federal Reserve chairman, and he's been saying,
Speaker 5: we don't want you to look at what we're doing
Speaker 5: and what you think we're gonna do. We want you
Speaker 5: to look at the numbers and come up with your
Speaker 5: own thinking about that, And what that ultimately means is
Speaker 5: every single time that we get a data print, the
Speaker 5: market will be more volatile in terms of reacting to
Speaker 5: that specific number then it was in the past, because
Speaker 5: we're getting less information from the Federal Reserve about what
Speaker 5: they're going to do, that less forward guidance from the
Speaker 5: Federal Reserve. So if that number comes in hot, as
Speaker 5: you say, Nathan, then I think that the markets will
Speaker 5: react negatively.
Speaker 2: Of course, we saw some reporting this past week that
Speaker 2: the Chairman is keeping open the possibility of hiking interest
Speaker 2: rates if inflation prints do come in too hot after
Speaker 2: the relative lack of guidance that we got at the
Speaker 2: last FED meeting, is there a chance that we could
Speaker 2: see the Fed lean toward a hike just to get
Speaker 2: back some of that market credibility.
Speaker 5: Well, potentially. However, the jobs number that we saw last
Speaker 5: week took a lot of the impetus out of that move,
Speaker 5: because now the market's not even pricing it. If the
Speaker 5: market's not pricing it, then the Fed may not do
Speaker 5: it as a result of that. It's hard to say,
Speaker 5: because we're in a new regime.
Speaker 3: Now.
Speaker 5: But if the Fed does not raise rates in September,
Speaker 5: then suddenly you're in a situation where October, which is
Speaker 5: right before an election, is the potentially the first time
Speaker 5: that you're going to raise interest rates. So legitimately September
Speaker 5: is probably a better time just from a purely practical stance,
Speaker 5: given that Donald Trump is a vocal FED critic, but
Speaker 5: it's hard to say how the Fed is thinking about that.
Speaker 2: I really appreciate this set again, Thanks so much for
Speaker 2: coming on with us on the weekend. That is Edward Harrison,
Speaker 2: senior strategist for Bloomberg News and the author of the
Speaker 2: Everything Risk newsletter. Let's take a look now at some
Speaker 2: stocks making news in the week ahead. I'm Nathan Hager,
Speaker 2: joined by Bloomberg News reporter Judy LaGrue, and the earning
Speaker 2: story continues well right away on Monday when we hear
Speaker 2: from Him's and hers after the closing bell. I mean,
Speaker 2: it feels like healthcare earnings have been going pretty good
Speaker 2: so far this season. Does that include telehealth, Judy?
Speaker 6: Do you know tell my health is having a really
Speaker 6: interesting sort of season with this earning season. But Hyms
Speaker 6: and Hers, I think is certainly a space to watch
Speaker 6: for a lot of investors. The company is be EPs
Speaker 6: estimate six of the last ten quarters. It's you know,
Speaker 6: really seen a lot of growth recently, however, that growth
Speaker 6: is kind of slowing down right now. So reported subscriber
Speaker 6: growth was about thirty five percent for sixteen straight quarters,
Speaker 6: but for the last two quarters growth has been nine
Speaker 6: percent and about thirteen percent perspectively. So I think what
Speaker 6: a lot of investors are really looking at is how
Speaker 6: Hymns ticker HIMS is responding to that slowing growth. So
Speaker 6: stock movement is also an interesting space to watch. The
Speaker 6: stock is down about nine percent this quarter alone, so
Speaker 6: definitely for investors looking to see Hymns and Hers earnings
Speaker 6: results and then how that stock will respond to the
Speaker 6: growth and report.
Speaker 2: Yeah, it's interesting, Judy. Ahead of this earnings we heard
Speaker 2: Hymns announce a new app with a doctor led AI
Speaker 2: native experience. I think anytime anybody hears the letters AI,
Speaker 2: their ears start to burg out.
Speaker 6: That's right, that's right, Nathan, And I think for Hymns
Speaker 6: and Hers, certainly trying to really push the envelope with
Speaker 6: respect to getting their consumers to stick with them, I
Speaker 6: think is certainly paramount for the company. One item as
Speaker 6: of note is that there was an FTC or is
Speaker 6: an FTC rather lawsuit against his and Hers. The plaintiffs
Speaker 6: are FTC Utah and Los Angeles County, and the lawsuit
Speaker 6: is alleging that Hymns and Hers has misled customers into
Speaker 6: locking themselves into recurring subscriptions and that the company has
Speaker 6: shared private information with Meta and Snap despite saying that
Speaker 6: they were protective of customer privacy. So definitely, you know,
Speaker 6: I think investors will want to know what the company
Speaker 6: has to say about this. Certainly, the company has come
Speaker 6: out to say that the FTC lawsuit disregards substantial evidence,
Speaker 6: So look for analyst questions on that. Look for stock
Speaker 6: moves based on what management says about this. I really
Speaker 6: think it's a space to watch.
Speaker 2: Yeah, nobody likes illegal overhang over any company. The earning
Speaker 2: story continues on Tuesday and other tech name reporting in
Speaker 2: core Weave after Tuesday's close, putting a focus back on
Speaker 2: AI infrastructure after all the concerns about hyper scale spending.
Speaker 6: That's correct, Earnings from core Weave tick r cr WV
Speaker 6: will show whether enormous EI demand can outweigh the heavy
Speaker 6: cost of data centers and debt. Right, So the company
Speaker 6: is expected to report its highest revenue since their IPO
Speaker 6: in twenty twenty five. It's sort of Wall Street is
Speaker 6: expecting two point five billion in revenue this quarter, so
Speaker 6: you know, really looking at really how core Weave is
Speaker 6: managing that. And I think that Bloomberg Intelligence analysts really
Speaker 6: hit the new on the head that satan when they
Speaker 6: wrote that core Weave's second quarter earnings will signal to
Speaker 6: investors whether AI demand remains stronger than their share price implies,
Speaker 6: and they excited that they feel like the share price
Speaker 6: is underperforming, so they'll be looking at revenue specifically for
Speaker 6: their earnings, and Bloomberg Intelligence really believes that the revenue
Speaker 6: for Kreweve for the quarter could exceed guidance.
Speaker 2: Now, that would be a pretty big turnaround at a
Speaker 2: time when, as you know, Corewave's kind of missed more
Speaker 2: often than not when it comes to earnings. Is the
Speaker 2: bar pretty high then for core Weave to outperform this
Speaker 2: time around?
Speaker 6: I mean you're right about that, Nathan. The company has
Speaker 6: missed EPs estimates four times out of the last five quarters.
Speaker 6: So yes, definitely looking at that, looking at revenue, looking
Speaker 6: at EPs, and really understanding from management, and again the
Speaker 6: earnings call and comments are really going to be big
Speaker 6: here where they see the company going. Analysts, on the
Speaker 6: other hand, are quite bullish. Twenty nine buys eleven holds
Speaker 6: three cells. So again we'll be listening to that earning
Speaker 6: call quite closely.
Speaker 2: Yes, absolutely, we're also going to be listening, I think,
Speaker 2: to earnings from Kava they report on Tuesday as well.
Speaker 2: Is this one affected do you think by the produce
Speaker 2: scare that we've seen in fast food as opposed to
Speaker 2: fast casual.
Speaker 6: I mean, certainly anybody who touches lettuce is having a
Speaker 6: rough summer, I will say that. So, yes, we focusing
Speaker 6: on ticker c a VA. That's right, And so for analysts,
Speaker 6: the earnings for Kava Group really need to show that
Speaker 6: customer traffic, restaurant profits, and new store growth is remaining
Speaker 6: strong despite these headwinds we're seeing, right with the cyclospara,
Speaker 6: the parasite, and really understanding exactly what kind of slow
Speaker 6: down the company is seeing as a result of all
Speaker 6: of the headlines about food safety. In general, the stock
Speaker 6: is up around thirteen percent this year, but down about
Speaker 6: eleven percent this month, and when we put that in
Speaker 6: comparison to names like Shakeshack, which is up about thirty
Speaker 6: percent this month, Dominoes, which is up about seventeen percent
Speaker 6: this month. Really, Kava, I think it could represent in
Speaker 6: many respects close to the epicenter of this issue with cyclospora,
Speaker 6: as it pertains to let us and produce as it
Speaker 6: gets served in fast casual settings.
Speaker 2: Yeah, oh so, we'll be watching for those hungry for
Speaker 2: the earnings. Thank you, Judy, Judy LaGrue of Bloomberg News
Speaker 2: with stocks to watch, Judy, thank you for this. Coming
Speaker 2: up on Bloomberg day Break weekend, we'll examine the extent
Speaker 2: of Europe's latest energy crisis. I'm Nathan Hager, and this
Speaker 2: is Bloomberg. This is Bloomberg day Break Weekend, our global
Speaker 2: look ahead at the top stories for investors in the
Speaker 2: coming week. I'm Nathan Hager in Washington. Up later in
Speaker 2: the program will look to a monetary policy decision from
Speaker 2: the Reserve Bank of Australia. But first, in the coming days,
Speaker 2: we hear from some of Europe's biggest energy companies about
Speaker 2: their recent performance as reserves drop to new lows and
Speaker 2: geopolitical unrest drives up prices. How are the major players responding,
Speaker 2: let's head to London and bring in Bloomberg daybreak, europe
Speaker 2: banker Caroline hepger Nathan.
Speaker 3: European gas storage levels have fallen to their lowest for
Speaker 3: this time of year in almost two decades, after the
Speaker 3: war in the Middle East drove up prices and stalled
Speaker 3: winter stockpiling. The situation has left governments with a growing
Speaker 3: dilemma as colder weather approaches. At the start of this month,
Speaker 3: European Union inventories were only just about fifty seven percent full. Meanwhile,
Speaker 3: prices are still about eighty percent above pre war levels
Speaker 3: and remain higher than winter contracts, leaving little incentive for
Speaker 3: hoarding the fuel. And extreme temperatures are also a factor.
Speaker 3: A series of blossering heat waves in the region has
Speaker 3: weakened some of the most historically reliable sources of electricity,
Speaker 3: forcing more dependence on imported fossil fuels and variable renewable
Speaker 3: energy frances. Rather cooled nuclear power plants have suffered a
Speaker 3: recuid amount of heat related outages. Emi Ashford is head
Speaker 3: of Energy Structure, It's standard chartered bank, and says that
Speaker 3: the sector is facing a particularly pertinent combination of challenges now.
Speaker 7: Whether it's always mattered to the energy complex. It influences
Speaker 7: fuel demand, but increasingly extreme heat and drought affect refiners'
Speaker 7: ability to produce fuels efficiently, so we have simultaneous raising
Speaker 7: of demand and constraint in supply. Each individual effect is
Speaker 7: relatively small, but when you combine them, that amplifies pressure,
Speaker 7: and we've particularly seen that on middle distillert cracks and
Speaker 7: boosting of refinery margins over the summer month at the
Speaker 7: ice Ga Brent crack that reflects European diesel pushed over
Speaker 7: seventy five dollars at the end of July, a near
Speaker 7: twenty year high, and there is still further upside possible
Speaker 7: there if conditions worsen. And Europe is a particularly interesting
Speaker 7: case for this because most European refineries were designed decades
Speaker 7: ago for significantly cooler climates. And the limiting factor isn't
Speaker 7: the dis column itself, but it's the cooling systems. As
Speaker 7: we see ambient temperatures increasing, air coolers become less effective.
Speaker 7: Cooling water sources like you mentioned, such as the rivers,
Speaker 7: they warm, so they remove less heat, and there's an
Speaker 7: increasing risk of refiners breaching water discharge temperature limits. And
Speaker 7: we have operational safety limits which we can reduce runs
Speaker 7: taking processing units offline.
Speaker 3: That was Emily Ashford from Standard Chartered there speaking to
Speaker 3: Bimberg's Lizzie Burden and Anna Edwards. So this is the
Speaker 3: backdrop for earnings from utilities Eon and RWE and the
Speaker 3: wind ter buying manufacturer Vestas that will get in the
Speaker 3: next few days. Do mean now for more is Bloomberg's
Speaker 3: Brussels Buia chief Suzan Lynch and our energy reporter Aim
Speaker 3: and Fauhat Suzan. The energy crisis is affecting much of
Speaker 3: the European continent. What has the response been like in Brussels.
Speaker 8: Well, I think since the outset of the war in Iran,
Speaker 8: European officials have been keen to stress that this is
Speaker 8: not the same as a crisis that engulfed the European
Speaker 8: Union back in twenty twenty two, following the full scale
Speaker 8: invasion by Russia of Ukraine. Then we saw that big
Speaker 8: energy spike. Things have not gone as high as we
Speaker 8: have then. One reason the EU officials are keen to
Speaker 8: stress is that Europe has diversified its supply. Now it's
Speaker 8: not directly dependent on the Middle East for energy imports.
Speaker 8: For example, it is more dependent on places like the
Speaker 8: US Norway, although of course it is indirectly impacted by
Speaker 8: what's happening in the Straitform moves and around that region.
Speaker 3: Yeah, as you say, perhaps not too comparable to twenty
Speaker 3: twenty two when Russia first invaded Ukraine. That was towards
Speaker 3: the end of the COVID nineteen pandemic, wasn't it. But
Speaker 3: then lay of that with the war in Iran. And
Speaker 3: there are some issues, aren't there for the EU to
Speaker 3: deal with? I mean, how do you think this place
Speaker 3: into diplomacy between the EU and the US given this pressure.
Speaker 8: Well, as part of the EU US trade deal that
Speaker 8: was signed around a year ago between Arsena underlyon the
Speaker 8: head of the European Commission, and Donald Trump at his
Speaker 8: golf course in Scotland, a big part of that was
Speaker 8: a commitment by Europe to buy around seven hundred and
Speaker 8: fifty billion worth of US energy. Now we do know
Speaker 8: that the Europeans have been buying a lot of LNG
Speaker 8: from the US. Now, whether it's going to hit those figures,
Speaker 8: how you measure that, that's a whole other question. But
Speaker 8: that is certainly the case, and even in some quarters
Speaker 8: there's been talked about, is the European Union building up dependency.
Speaker 8: It's just got a rid of one dependency for Russia,
Speaker 8: and here it is kind of opening up potentially your
Speaker 8: dependency with the US at a time when of course
Speaker 8: relations between the US and Europe are at low. It
Speaker 8: has to be seen. But look, I'm not downplaying the
Speaker 8: issue here for the European Union. The reality is that,
Speaker 8: you know, the EU storage facilities have come to LNG.
Speaker 8: The gas are very very low. It's around fifty seven
Speaker 8: percent full. That's been the lowest in records going back
Speaker 8: to around two thousand and nine. And we have seen
Speaker 8: these LNG imports have been dropping since April because of
Speaker 8: the disruption and supply. Now again the European Union is saying,
Speaker 8: you know, not time to panic yet. It believes that
Speaker 8: fresh import will offset and those lower levels of storage.
Speaker 8: But undoubtedly it is an issue now as we get
Speaker 8: into the winter months.
Speaker 3: Yeah, it's already starts to turn even though it's August.
Speaker 3: You can feel that the daylight hours are becoming shorter
Speaker 3: in the UK at least. Really interesting, Suzan, thank you
Speaker 3: so much. Yeah, for those thoughts then about Europe. How
Speaker 3: Europe can try to ameliorate the energy situation after well
Speaker 3: a series of crises really in overlaying crises. Thank you amen.
Speaker 3: Let me turn to you then in terms of this
Speaker 3: well what i'll call a multi layered problem, a recurring
Speaker 3: problem of energy for Europe. What do you think there
Speaker 3: is about this particular moment that is so very difficult
Speaker 3: for the European energy market.
Speaker 9: I mean, I think this, as we always say this,
Speaker 9: a lot of it is about weather. I mean, we've
Speaker 9: had now this extreme heat this summer. Definitely some of
Speaker 9: it's predictable, you know, it's always hot in the summer,
Speaker 9: but it has been quite prolonged, and just now all
Speaker 9: these companies and all these different markets will be thinking
Speaker 9: about getting ready for winter. And when you have that
Speaker 9: kind of that winter looming with what's happening this summer,
Speaker 9: with lots of energy supplies being used up because of
Speaker 9: cooling demand, but also lots of issues with calling nuclear actors,
Speaker 9: meaning we have to use more call and gas apply.
Speaker 9: You know, it puts everyone in a bit of a
Speaker 9: difficult position going into the coming months as we prepare
Speaker 9: for those colder months ahead.
Speaker 3: Yeah, Suzanne was just mentioning though it's not really a
Speaker 3: crisis that you can compare to the invasion of Ukraine
Speaker 3: when that sensed such a shock across Europe in terms
Speaker 3: of the scale of this problem. Give us some idea
Speaker 3: of how you're thinking about it.
Speaker 9: Yeah, I mean, you're right, I think very quickly we
Speaker 9: start trying to draw those parallels, and we're not in
Speaker 9: the same position as we were back then. That being said,
Speaker 9: we are starting to see some i'd say warning signs.
Speaker 9: For example, when we look at some of the energy
Speaker 9: futures energy prices, they are going up to levels that
Speaker 9: we haven't seen since winter twenty twenty two. I think
Speaker 9: you're a sorry about Italy actually this week, which is
Speaker 9: very gas dependent, which just so one of their prices
Speaker 9: go up to the highest since December twenty twenty two,
Speaker 9: which is quite shocking. But we always say when it
Speaker 9: comes to again to winter, which is really where these
Speaker 9: effects are felt, it only takes, you know, a very
Speaker 9: cold snap, a difficult month to very quickly be in
Speaker 9: I'm not going to see the same position, but in
Speaker 9: a very similar position as we were back then. So
Speaker 9: although you're right, we're not there yet, everyone is very
Speaker 9: aware that that could change very quickly depending on the
Speaker 9: months ahead.
Speaker 3: So how are energy providers dealing with that situation? And
Speaker 3: as you say, are they therefore passing those price pressures
Speaker 3: onto consumers?
Speaker 9: Yeah, I mean when it comes to wholesale markets, as
Speaker 9: I said, the prices have been elevated because of the
Speaker 9: the around war, they are elevated because of the extreme
Speaker 9: heat this summer and also because of gas storage issues.
Speaker 9: Those prices do get passed on to consumers through their
Speaker 9: bills in different mechanisms in different countries. It has to
Speaker 9: be said that Europe has learned obviously since the last time.
Speaker 9: We've built a lot more resilience, whether that be expanding
Speaker 9: renewble energy, that be just kind of getting smarter about
Speaker 9: how we run our gread at different times. That's something
Speaker 9: that everyone is thinking about. But you know, again with
Speaker 9: renewable energy, there are lots of things that can affect that,
Speaker 9: whether there's less wind for a period of time, So
Speaker 9: it still creates vulnerabilities and there's no kind of golden bullet,
Speaker 9: but it's just about trying to mitigate every ventrality that
Speaker 9: could lead to those difficult times.
Speaker 3: Okay, in the next few days, we've got earnings from
Speaker 3: some major companies, utilities, businesses in Europe from Eon, our
Speaker 3: we also vest us. What are we expecting in terms
Speaker 3: of Eon and RWE earnings and will some of these
Speaker 3: themes be evident in their reports?
Speaker 9: Yeah, I mean, I think these these companies operate across
Speaker 9: different parts of the energy landscape. I mean, Eon, they
Speaker 9: do lots in the grid space, and grids have been
Speaker 9: really important this summer as far as resilience goes, making
Speaker 9: sure that energy can be kind of brought from different
Speaker 9: parts of the country. So it's very much going to
Speaker 9: be kind of an investment picture there about you know,
Speaker 9: the whole story we've been having about upgrading grids, being
Speaker 9: able to carry that wind energy from the north to
Speaker 9: the south in Germany, et cetera. I think Our we similar.
Speaker 9: They're obviously a bit more, a bit more impacted in
Speaker 9: the kind of renewable spaces. They're also building their own
Speaker 9: projects in different jurisdictions, you know, bidding for products in
Speaker 9: the UK and elsewhere, So for them it'll also be
Speaker 9: about that investment picture. We have had a difficult few
Speaker 9: years for offshore wind, something that we keep talking about,
Speaker 9: and those cost pressures are still there. But at the
Speaker 9: same time, you know, when energy prices go up elsewhere
Speaker 9: because of geopolitical things, wind does start becoming more interesting
Speaker 9: as well. So there's kind of an investment case there
Speaker 9: to think about and see how these companies react to that.
Speaker 3: What about VESTA US again with the exposure to the US,
Speaker 3: so that's been in focus in the past.
Speaker 9: Yeah, I mean the US has been a difficult market
Speaker 9: for offshore win recently because of the actions of Trump there.
Speaker 9: That being said, Vestas has already kind of done a
Speaker 9: lot of what they have to do there as far
Speaker 9: as kind of pulling back. They'll be focusing on other projects.
Speaker 9: And again it's again that investment picture about where they
Speaker 9: start putting their capital next. They know, they've also been
Speaker 9: looking at the different kinds of kind of M and
Speaker 9: A and stuff like that. But I think it's important
Speaker 9: also to note that although when we talk about the
Speaker 9: US and kind of renewables more generally someonoys we talk
Speaker 9: about being kind of a difficult environment, there are still
Speaker 9: opportunities there in all these companies. When I talk to
Speaker 9: them about the US market, they're still very interested. They're
Speaker 9: still looking at projects there. So there are still opportunities
Speaker 9: there for these firms.
Speaker 3: Okay, in terms of the EU. Suzanne talked a lot
Speaker 3: about the different meetings that are taking place about how
Speaker 3: at a policy level that EU tries to deal with this.
Speaker 3: I mean, what is your take on that As you
Speaker 3: focus a lot on businesses, investment and companies, what's their
Speaker 3: perspective on how Europe is managing, as I say, a
Speaker 3: kind of recurring issue around energy.
Speaker 9: Yeah, I mean, I think it's interesting because this has
Speaker 9: happened now a few times recently. It says this is
Speaker 9: a recurring issue, and it does seem like the from
Speaker 9: a policy perspective, things do seem quite slow. It's all
Speaker 9: about you know, building more alt renewable energy, you know,
Speaker 9: getting this kind of resilience, but that doesn't feed through
Speaker 9: to consumers so quickly. Consumers are kind of all businesses
Speaker 9: as well are seeing that difficulty in the coming kind
Speaker 9: of three months, you know, the coming six months, whilst
Speaker 9: the plans to kind of reach these big net zero
Speaker 9: goals and not be dependent on gas are more like
Speaker 9: three to five year time horizons. So that's something that
Speaker 9: I think is difficult because you know it will pay
Speaker 9: off at some point, but the payoff isn't soon enough,
Speaker 9: and people are feeling the pain that I guess you
Speaker 9: can say they have learned from what it happened twenty
Speaker 9: twenty two, and there are kind of shorter term solutions,
Speaker 9: but at the end of the day, it's more about
Speaker 9: building that kind of system resilience which takes longer, which
Speaker 9: only feeds through after a while, and hoping that populations
Speaker 9: kind of you know, battle through that difficult period for
Speaker 9: the time being.
Speaker 3: Yeah, dealing with voted dissatisfaction about something that affects them,
Speaker 3: you know, at the sharp end. So much, Aimon, thank
Speaker 3: you so much for being with me. My thanks to
Speaker 3: Bloomberg's Aiman Farhat and also to Suzanne Lynch. And we
Speaker 3: will bring you full coverage of the earnings film vestas
Speaker 3: Ian andr We in the coming week across Bloomberg platforms.
Speaker 3: I'm Caroline Hepgar Here in London. You can catch us
Speaker 3: every weekday morning for Bloomberg Daybreak you at beginning at
Speaker 3: six am in London, that's one am on Wall Street.
Speaker 2: Nathan, Thanks Caroline, and coming up on Bloomberg day Break weekend,
Speaker 2: we look to a raat decision from the Reserve Bank
Speaker 2: of Australia. I'm Nathan Hager, and this is Bloomberg. This
Speaker 2: is Bloomberg day Break weekend, our global look ahead at
Speaker 2: the top stories for investors in the coming week. I'm
Speaker 2: Nathan Hager in Washington. This week we get a rate
Speaker 2: decision from the RBA, the Reserve Bank of Australia. For
Speaker 2: a preview, let's get to Doug Prisner, host of the
Speaker 2: Bloomberg Daybreak Asia podcast.
Speaker 4: Thanks Nathan. The Reserve Bank of Australia raised its policy
Speaker 4: rate at each of the bank's first three meetings of
Speaker 4: the year. Now in June, policymakers held steady To help
Speaker 4: us understand the current dynamics of the Australian economy and
Speaker 4: what the RBA may do next. I'm joined by Bloomberg
Speaker 4: economist James McIntyre, who covers Australia and New Zealand. James
Speaker 4: joins from our studios in Sydney. Thank you so much
Speaker 4: for being here. Can we begin by setting the stage
Speaker 4: with the story on inflation. I believe the latest reading
Speaker 4: was a bit cooler than expected. Help me understand what's
Speaker 4: going on.
Speaker 10: So what we had was we got the June data
Speaker 10: and that also gave us the quarterly data and Australia
Speaker 10: is still in this bit of a situation. Where we've
Speaker 10: got a new monthly CPI and that's slowly gradually taking
Speaker 10: over from the quarterly which the RBA looked at, and
Speaker 10: whether it's the monthly or the quarterly number, at the
Speaker 10: end of the day that the latest figures that we
Speaker 10: got were a little bit softer than the market, but
Speaker 10: more importantly a little bit softer than what the RBA
Speaker 10: was expecting. They raised rates at their May meeting and
Speaker 10: put out a set of updated projections, which is the
Speaker 10: basis for why they wanted to raise rates, and inflation
Speaker 10: has come in not as hot, and so the three
Speaker 10: rate hikes that the RBA delivered over the course of
Speaker 10: this year to try and help slay that inflation dragon, well,
Speaker 10: it turns out that the dragon, at least in the
Speaker 10: data so far, isn't as big as the Central Bank
Speaker 10: had initially thought.
Speaker 4: When you look at the work that you do and
Speaker 4: trying to understand the various data points, do you think
Speaker 4: this is a durable trend will at last?
Speaker 10: It's always an evolving picture. And one of the pieces
Speaker 10: of the puzzle that's evolving increasingly that might help things
Speaker 10: endure and last on the inflation front is the housing
Speaker 10: market downturn. And the consumer and domestic demand side of
Speaker 10: the economy. It's what we've said since those rate hikes,
Speaker 10: and we've had not just those rate hikes, but we've
Speaker 10: had the shock from the conflict with Iran, and then
Speaker 10: some policy changes around the taxation of property in the
Speaker 10: recent federal budget, and the three of those factors have
Speaker 10: combined to deliver pretty sharp downturn in the housing market,
Speaker 10: where people buyers have really pulled back and are sitting
Speaker 10: on their hands.
Speaker 4: So, if there has been this contraction in consumers spending,
Speaker 4: what do you think it's going to take to reverse that?
Speaker 4: Is the recipe here necessarily lower interest rates or does
Speaker 4: something else have to change? Do you think we do have.
Speaker 10: A situation where the labor market is not generating enough
Speaker 10: jobs That we did have strong jobs in the most
Speaker 10: recent month, but if we take a bit of a
Speaker 10: longer arc over the year, we do have a softening
Speaker 10: of labor market capacity. It might not, especially for the
Speaker 10: property market and where the fears are for consumers right now,
Speaker 10: it might not be that rate cuts and necessary. It
Speaker 10: could be that we could see a little bit of
Speaker 10: a stabilization within that. If there was a signal from
Speaker 10: the RBA that they're likely to be on hold from here.
Speaker 10: That would be a big relief to households and could
Speaker 10: be something that could help catch what is currently a
Speaker 10: bit of a downturn and help stave that off. But
Speaker 10: it's unlikely that the RBA is going to be doing
Speaker 10: that with inflation where it is. Inflation has been weaker
Speaker 10: than expected, but it's still above their target, and so
Speaker 10: they're likely to sound a little bit hawkish we think
Speaker 10: at this August meeting, but softening their tone perhaps over
Speaker 10: the meetings to come towards the end of the year.
Speaker 4: Not a day goes by when there is not major
Speaker 4: news as it relates to artificial intelligence. And I was
Speaker 4: reading a piece that you sent. This is concerning the
Speaker 4: RBA's chief economist, Sarah Hunter, who was warning that data
Speaker 4: center boom maybe adding to pressures in the construction industry
Speaker 4: by essentially taking workers away from other projects. Talk to
Speaker 4: me a little bit about that and the level of
Speaker 4: skilled labor that is available to tackle these kind of
Speaker 4: construction projects.
Speaker 10: So Australia has a very big infrastructure boom in one
Speaker 10: of the second largest state and also in the largest
Speaker 10: state in New South Wales, but in Victoria, there is
Speaker 10: a major infrastructure boom as they roll out a lot
Speaker 10: of civil construction for infrastructure in that state, and that's
Speaker 10: something that has been a challenge for the residential construction
Speaker 10: sector in order to get enough skilled trades people to
Speaker 10: build the homes that are needed for the migration story
Speaker 10: in the population picture or the strong population growth that
Speaker 10: Australia tends to have thanks to migration. So we need
Speaker 10: the housing, we need the construction workers for that.
Speaker 2: We've got a very big.
Speaker 10: Infrastructure construction boom around transport infrastructure. We're just putting the
Speaker 10: finishing touches on a second airport for Sydney and a
Speaker 10: lot of infrastructure around that. So the construction sector is
Speaker 10: operating at capacity. And then when we think about that picture,
Speaker 10: then there is this very large positive demand shock into
Speaker 10: the economy from AI and the construction of the data centers,
Speaker 10: and so this is something that is it's catching the
Speaker 10: Reserve Bank's i quite obviously and quite importantly because you
Speaker 10: know hyperscalers. If we look at what's been happening with
Speaker 10: the price of be It processing chips and then memory chips,
Speaker 10: the price of the iPhone is going to go up
Speaker 10: because the hyperscalers are bidding up for all of these
Speaker 10: scarce resources from the chip makers.
Speaker 4: So broadly speaking, would you say that the build out
Speaker 4: that we're seeing in Australia of these AI data centers
Speaker 4: is that a positive for overall GDP?
Speaker 10: It is in the construction sense, but we do see
Speaker 10: a lot of this GDP the data center boom, if
Speaker 10: you want to call it that. There's two elements. There's
Speaker 10: the machines that you put into the data center, and
Speaker 10: there's the building of the data center. The building that's
Speaker 10: a boom for the economy, the machines that go in,
Speaker 10: or that boom just goes straight out the import side
Speaker 10: of the GDP calculation. That's a boom that's made in
Speaker 10: South Korea, that's made in Taiwan, And if we look
Speaker 10: at our balance of payments and our trade figures on
Speaker 10: a monthly basis, you can definitely see that that's where
Speaker 10: that side of the boom is showing up. But on
Speaker 10: the construction side, yes, it's definitely something that is delivering
Speaker 10: an extra boost to GDP and that's a positive in
Speaker 10: the overall picture for the economy, given that that housing downturn,
Speaker 10: the three rate hikes that's seeing some of the softness
Speaker 10: coming through on the consumer side of things.
Speaker 4: You mentioned the softness of the housing market a moment ago,
Speaker 4: and I'm wondering whether or not there is a positive
Speaker 4: side to that story, something that we need to tease
Speaker 4: out a little bit more, especially where the issue of
Speaker 4: affordability comes into play.
Speaker 10: For a long time there has been significant challenges and
Speaker 10: a lot of hand ringing and concern by policymakers about
Speaker 10: how to address the affordability challenge within the housing sector.
Speaker 10: House prices are easing back a touch, interest rates are high.
Speaker 10: High interest rates don't help audability, But we do have
Speaker 10: a situation of house prices coming off slightly, inflation continuing
Speaker 10: to rise, wages continuing to rise as well, so real
Speaker 10: house prices are in decline, real wages are gradually creeping higher.
Speaker 10: There is a positive there that once we do get
Speaker 10: some potential clear signs that the inflation challenge is over
Speaker 10: and that dragon slightly smaller dragon is actually slain, and
Speaker 10: the Reserve Bank can think about normalizing monitory policy and
Speaker 10: bringing it back from where it is back towards a
Speaker 10: more neutral setting, that we will see that it will
Speaker 10: become quite clear that this maybe has set up some
Speaker 10: of the perhaps early next year or in twenty twenty eight,
Speaker 10: has set up some of the most beneficial or positive
Speaker 10: housing affordability conditions that Australians might have seen in the
Speaker 10: last ten, fifteen, or maybe even twenty years.
Speaker 4: You mentioned the immigration issue a moment ago, and I'm
Speaker 4: trying to get a sense of what's happening in that
Speaker 4: dynamic right now and whether or not the government believes
Speaker 4: that it's important to kind of control the flow of
Speaker 4: migrants coming into the country, or whether there is the
Speaker 4: realization that in order for the economy to expand further,
Speaker 4: that an influx of migrants is really necessary.
Speaker 10: Well, Doug, Look, this is a key tension point within
Speaker 10: the economy and also within within domestic politics. The migration
Speaker 10: story has been part of what's kept Australia's economy growing
Speaker 10: over the last couple of years. Per capita GDP growth
Speaker 10: this week, and we've had cost of living pressures that's
Speaker 10: been a kind of a cover for what's gone on
Speaker 10: within the economy in terms of living standards not really
Speaker 10: moving anywhere GDP per capita being in recession and flatlining
Speaker 10: for some point in time, and that's a different scenario
Speaker 10: to what voters and the community expects and has been
Speaker 10: used to over our history, and it's sort of natural
Speaker 10: that people gravitate towards, you know, people that are offering
Speaker 10: or at least calling out not what they're feeling, and
Speaker 10: so Australia does have that challenge. Politically, there is the
Speaker 10: emergence of a group similar to what we've seen with
Speaker 10: the MAGA and then UK Reform within the One Nation
Speaker 10: Party within Australia having quite a big anti immigration type stance,
Speaker 10: and that has been their polling has really risen quite
Speaker 10: quite a bit and putting a lot of pressure on
Speaker 10: the government and the main opposition party around what to
Speaker 10: do about limiting migration in the sense that that being
Speaker 10: something that has captured people's imaginations as a possible solution. Now, really,
Speaker 10: when we think about Australia and Australia's economy continues to
Speaker 10: have such abundant opportunities ahead of it, and we do
Speaker 10: need labor to come in and help us unlock some
Speaker 10: of those potential and possibilities. But what we haven't seen
Speaker 10: and over the last couple of years, is we haven't
Speaker 10: seen the benefit of improvements in living standards coming along
Speaker 10: with the growth in the economy, and so you know
Speaker 10: that's where this party has come up and the support
Speaker 10: for around this anti migration story has really come through.
Speaker 10: There are some signs though that if we do get
Speaker 10: an improvement in living standards and a pick from improved
Speaker 10: productivity growth as the government's roll out of or the
Speaker 10: funding for big social programs by the government is curtailed
Speaker 10: somewhat freeing up some room for the private sector it
Speaker 10: potentially through the productivity enhancing benefits coming through from the
Speaker 10: AI Data Center boom, and then the economy economic opportunities
Speaker 10: that might evolve after that. These are things that will
Speaker 10: come over time in the pipeline, but for the moment,
Speaker 10: it is delivering this significant pressure on migration, and so
Speaker 10: we have seen that the government put in a lot
Speaker 10: of policies to try and wind that back. There haven't
Speaker 10: been seeing much signs of success at the headline level,
Speaker 10: but we're seeing some signs coming through in some of
Speaker 10: the more high frequency data, especially around student visas and
Speaker 10: the like, that some of the pressure might be coming
Speaker 10: off soon.
Speaker 4: So as we wrap up, I just want to get
Speaker 4: back to the RBA meeting just to underscore the fact
Speaker 4: that the latest reading on inflation was on the soft side.
Speaker 4: We hear, or I hear at any rate, the fact
Speaker 4: that the labor market is stable at best. There are
Speaker 4: some problems that are maybe being addressed. Do we have
Speaker 4: any guidance right now, at least from what the markets
Speaker 4: are seeing the money markets, in particular on what the
Speaker 4: RBA may do at the next meeting.
Speaker 10: Market expectations for the RBA have been dialed back a
Speaker 10: bit over the last especially following that inflation data. There's
Speaker 10: still an indication that markets are expecting perhaps a little
Speaker 10: bit more tightening, but a full hike not being fully
Speaker 10: priced in right now. But the situation is one where
Speaker 10: is a full rate hok is not priced in right
Speaker 10: now by markets. So there's still I guess, dipping the
Speaker 10: toe in the water or lukewarm support for further tightening
Speaker 10: with markets not expecting that the RBA is going to
Speaker 10: be easing back anytime soon.
Speaker 4: We really covered a lot of ground and I appreciate
Speaker 4: it so much. Bloomberg economist did James McIntyre helping us
Speaker 4: understand what's happening on the ground in Australia. James covers
Speaker 4: the economies of Australia and New Zealand for Bloomberg Intelligence.
Speaker 4: Joining from our studios in Sydney, I'm Doug Chrisner. You
Speaker 4: can catch us weekdays for the Daybreak Asia podcast. It's
Speaker 4: available wherever you get your podcast.
Speaker 2: Nathan, Thanks Doug, and that does it for this edition
Speaker 2: of Bloomberg Daybreak Weekend. Join us again Monday morning at
Speaker 2: five am Wall Street Time for the latest DOUN, markets
Speaker 2: overseas and the news you need to start your day.
Speaker 2: I'm Nathan Hager. Stay with us. Top stories and global
Speaker 2: business headlines are coming up right now.